Trump’s Trade War With China Pierces the Heart of Michigan

DETROIT — China’s flag flies high above Henniges Automotive, alongside those of Germany, Mexico, Canada and other nations, reflecting the global nature of Michigan’s auto industry and, increasingly, its reliance on Beijing.

Henniges, which produces sealing products for cars, was bought in 2015 by Aviation Industry Corporation of China, a state-owned company that has snapped up other investments in the Detroit area, including automotive supplier Nexteer, which sits just across Interstate 75 from Henniges. During the past several years, Beijing has steadily pumped billions of dollars’ worth of investment into Michigan, buying crumbling factories, building new ones and supporting more than 10,000 jobs in the state.

But where Michigan sees an economic partner, President Donald Trump sees an “economic enemy” — one intent on overtaking the United States' competitive edge by stealing technology, trade secrets and jobs from domestic companies. As Trump tries to punish China with tariffs and other restrictions, Michigan is caught in the crosshairs, with its ability to remain competitive and develop emerging technologies such as autonomous vehicles, robotics and artificial intelligence highly dependent on ties to international markets, including China.

“The automotive industry is a global industry,” said Michael O’Kronley, a top executive at A123 Systems, an electric vehicle battery maker purchased out of bankruptcy by Chinese company Wanxiang in 2013. “If you’re going to supply products into that, you need to be global.”

General Motors now sells many more cars in China than it does in the United States, and the largest exporter of cars from the United States by value is not a U.S. brand, but BMW. By some calculations, the car with the highest proportion of U.S. and Canadian-made content is the Honda Odyssey — and even that includes roughly a quarter of foreign-made parts. Companies — and their workers — say they recognize there are certain risks from sharing their technological secrets with Chinese competitors, but they say it is no longer a choice whether Michigan, the automotive capital of North America, should engage with China, the world’s largest auto market.

“You can’t separate the two,” Jerry Xu, former president of the Detroit Chinese Business Association, said of China and Michigan. “You’re going to kill the industry if you try.”

The inevitability of foreign ties has even filtered down to the industry’s rank-and-file workers, who — after witnessing years of layoffs and plant closings — say it matters less who owns their company than that it continues to survive. “There’s Japanese owners, there’s Chinese owners,” said Roy Pierce, an autoworker who, for more than 20 years, has helped make interiors for vehicles like the Jeep Wrangler and Ford F-150 at a facility in Port Huron, Michigan, near the Canadian border. “As long as they’re making it here, I can’t complain. It’s still paying our wages.”

Michigan is one of the industry’s global hubs, home to more than three-quarters of all automotive research and development that occurs in North America. The Detroit area boasts two major testing sites for autonomous vehicles, sprawling compounds of interstates, guardrails and mock pedestrians and bicyclists that companies and researchers use to test their technology. At the University of Michigan, a driverless vehicle shuttles students around the campus.

Global competition is stiff, however. China’s progress on both autonomous and new energy vehicles is booming, in part thanks to generous subsidies and government funding, restrictions on gasoline cars, and regulations that require Chinese automakers to produce a certain number of low-emission cars per year. In 2017, China accounted for more than half the electric vehicles sold globally, according to the International Energy Agency. Although many in Michigan say China is on equal footing or still behind the United States in terms of technological development, they do not expect that edge to last long.

To stay competitive, Michigan has spent much of the past decade trying to woo foreign investment from Beijing alongside long-standing investors from Japan, Europe and South Korea. In early May, as the Trump administration prepared to roll out tariffs and investment restrictions against China, Rick Snyder, Michigan’s Republican governor, welcomed more than 150 potential Chinese investors to tour Detroit, Ann Arbor and Grand Rapids.

While Washington was projecting a hostile climate, Snyder told the delegation that Michigan was “open for business.” In each of the past seven years, Snyder has traveled to China to visit entrepreneurs and solicit investment.

The overtures have paid off. Oakland County, a Detroit suburb home to many auto suppliers, ranks third nationally among U.S. counties in terms of the number of jobs that depend on Chinese investment, according to tracking by MacroPolo, a Chicago-based think tank. Chinese firms have also flooded into Wayne County, which includes downtown Detroit, to buy up defunct office buildings and vacant factory space. Larry Williams, president of Henniges, said a cash infusion from Aviation Industry Corp. of China allowed his company to expand abroad and add jobs at its U.S. facilities, including its Michigan headquarters. That investment was key to the company remaining competitive globally, he said, since major automakers like Ford, Volkswagen and Daimler now standardize their products internationally and will no longer do business with suppliers that can compete in only one market.

“I don’t think they’re coming here to steal technology or steal intellectual property,” Williams said of the Chinese. “I think they’re coming here to learn, but not to take it back to China and forget about North America. They want to create global companies.”

The acquisition by AVIC, a state-owned company that supplies planes and weapons to the Chinese military, was reviewed by the interagency Committee on Foreign Investment in the United States, which vets foreign deals for national security risks. Williams said he feared that, in today’s climate of rising suspicions toward China, the deal would be subjected to even intenser scrutiny.

The Trump administration has taken a far more pessimistic view of Chinese investment, particularly in technology and manufacturing, and is supporting legislation that would make it harder for foreign companies to invest in U.S. firms like Henniges. Peter Navarro, a top trade adviser to Trump, has argued that China’s trade surplus with the United States has given it vast financial resources to buy up U.S. companies, a process he describes as “conquest by purchase.” Other White House officials have said that some loss in Chinese investment, especially in sensitive technologies, is nothing to be dismayed about.

“There are a lot of areas where we do not want Chinese investment — militarily sensitive things, some areas of high tech,” Wilbur Ross, the commerce secretary, said. “There are lots of areas where we do welcome it, and that’s the prerogative of any country.”

Trump’s trade policies are beginning to chill Chinese investment. To pressure Beijing to change its trade practices, the president has put tariffs on tens of billions of dollars’ worth of Chinese products, and threatened hundreds of billions of dollars more, especially goods that feed into the “Made in China 2025” plan to cultivate high-tech industries. He has also proposed expanding government reviews of foreign investment.

Those actions, combined with tighter restrictions by the Chinese government on money flowing outward, are stemming Chinese investment in the United States. It plummeted more than 90 percent between the first half 2017 and the first half 2018, to its lowest level in seven years, according to tracking by Rhodium Group.

He Xian, a lawyer for the firm Butzel Long who helps arrange Chinese investments in Michigan, said the tariffs are actually encouraging some Chinese companies to move their operations to the United States, especially if they are seeking to supply to the U.S. market. But many other Chinese clients who depend on international ties are choosing to invest elsewhere because of tariffs and other barriers, as well as growing antagonism toward China more generally.

One of Butzel Long’s clients, a Chinese entrepreneur who was planning to set up a $10 million research and development facility in Michigan, recently chose to go to Germany instead, because of concerns over new regulations on licensing and technology transfer. Another Chinese company Xian worked with had been planning to import 5,000 tons of beef a year from Michigan — a win for the Trump administration, which reached a deal last year to finally open the Chinese market to U.S. beef. But in recent months, the Chinese company decided to give up on the deal, seeing the threat of a 25 percent Chinese tariff on U.S. beef as too great a risk.

“We need predictable, stable policies,” Xian said. “Without certainty, nothing can happen.” The auto industry is facing other pressures from the president’s trade agenda. His administration is investigating the national security threat posed by imported autos and auto parts, which could result in sweeping tariffs for the industry. Steel and aluminum tariffs levied by the administration this year are raising material costs for car companies, while the president’s threats to withdraw from the North American Free Trade Agreement would put the industry’s most valuable export markets at risk.

The Trump administration has pointed to a rising share of imports in the U.S. automobile market and falling numbers of manufacturing jobs as evidence that the industry needs help — though many economists attribute these trends in large part to irreversible processes of globalization and automation. The administration also sees the auto market as key to lessening what it sees as an unsustainable trade deficit.

Ross said at an investment forum in June that the trade deficit “really has two sets of origins.”

“One is a geographic one, that’s called China,” he said. “The other is a product one, that’s called automotive. If we don’t solve those two, we will not be able to do much to fix the trade deficit.”

But to many Michigan firms that have benefited from ties to China, the strategy appears counterproductive to the United States’ long-term growth.

As members of the United Automobile Workers, the industry’s main labor union, gathered for their constitutional convention in downtown Detroit, they acknowledged a wariness of foreign takeovers, but said investment from abroad had benefited them and their colleagues in the past.

Dominic Miccichi, a 24-year-old autoworker from Tiffin, Ohio, said a Chinese company, Ningbo Jifeng Auto Parts, was bidding to take over his plant, Toledo Molding and Die, by buying its current German owner, Grammer.

Miccichi admitted that the idea of U.S. companies being bought up by the Chinese “puts a bad taste in your mouth” but said the deal actually might benefit his fellow workers, by bringing the plant more money and more opportunities for expansion.

“We lose a lot of business because we’re not global,” he said of his factory near Toledo. “We used to make the interior of the Wrangler. That’s gone.”

“We’re anxious, but it could be a good thing,” he said of the deal.